A new breed of 'green' investment apps are aiming to capitalise on the rising interest in climate-conscious money management by encouraging investors to put their capital to work saving the planet rather than simply limiting the damage.
Clim8, an app that lets people invest in sustainable businesses, this week secured commitments of up to £2m ($3m) from Channel 4 Ventures to fuel its growth. The cash adds to the £6m or so already raised to date.
Meanwhile, Sugi, an app that lets people see the climate impact of their investments, will soon launch to the public.
Both businesses are part of a wave of new startups aimed at helping people make a difference with their money, rather than just making a return. Others include Tickr, another app that curates stocks for investors interested in 'impact investing'.
"It’s empowering, hopefully, millions of people to use their savings and investments in a positive way that can have an impact on this massive problem that we’re facing," said Duncan Grierson, the founder of Clim8.
Clim8 offers customers a selection of 400 curated stocks, including 40 high-conviction stocks, that are doing something good for the planet.
Examples include Danish wind turbine manufacturer Vestas (VWS.CO), Danish clean energy company Orsted (ORSTED.CO), and Schneider Electric (SU.PA), a French company developing software and hardware for energy efficiency.
Interest in ESG — environmental, social, and governance — investment has exploded in recent years. Billions of dollars have flown into funds and companies with high ESG ratings or certifications in recent years. Even still, Clim8's approach is "quite unusual today," Grierson said.
While the vogue for ESG is often portrayed as climate-friendly, Grierson said the funds in the sector are usually just "screening out stuff that is negatively impacting the environment."
"That’s a good start but we think you should be doing a lot more than that," he told Yahoo Finance UK. "I’m trying to move billions of pounds, dollars away from stuff that is having zero impact on climate change to the companies that are having an impact on climate change."
Grierson argues investors should be actively tackling the problem rather than simply limiting the damage.
"[Climate change] is the biggest problem facing our planet — infinitely bigger than COVID and is not going away," he said. "There is no vaccine for climate change — we need to be doing much, much more."
Josh Gregory, the founder of Sugi, has a similar point of view. His startup links with brokerages to let investors measure the carbon emissions of their investment portfolios. The app has also developed a tool measure the global warming forecast of investment portfolios.
“They see whether their portfolio is aligned with say 3 degrees, 4 degrees, 5 degrees global warming," Gregory told Yahoo Finance UK.
Academic research suggests the average investment portfolio is aligned with global warming of around 3 degrees this century, Gregory said. Tests run by Sugi on several portfolios returned readings of 4 or 5 degrees. The 2015 Paris Agreement committed world leaders to try and limit warming to 1.5 degrees.
"It’s pretty depressing stuff," Gregory said.
"When we launched, there was a buzz about it because actually no one is really disclosing this stuff to retail and even now at the institutional level asset managers are really reluctant to disclose the temperature of their funds because, actually, quite a lot of them are quite high temperature. It’s quite embarrassing."
Sugi, which is set to launch on Apple's (AAPL) app store within weeks, benchmarks investments against their sector and shows users more environmentally friendly alternatives. It hopes to nudge investors towards more eco-friendly investments.
Like Grierson, Gregory sees faults with the current fashion for ESG investing. For the 'E' in ESG, ratings agencies typically look at what's called transition risk — how badly a company's business might be damaged by a warming planet or shifts towards a greener economy. That can mean businesses doing nothing for the planet come out with a high rating.
Both chief executives highlighted tech as a blind spot in ESG. Big Tech companies like Netflix (NFLX), Facebook (FB), Google (GOOGL), and Microsoft (MSFT) use huge amounts of electricity but still turn up regularly in ESG funds.
"They all have massive data centres, they all use huge amounts of energy, and they might be buying some or all of that energy via PPAs — Power Purchase Agreements — from solar or wind developers," Grierson said. "Now that’s great but none of those companies are moving the dial on climate change."
Sugi doesn't count carbon offsets — a favoured tool of Big Tech — in its measurements as the electricity is still generated, which generates carbon. While they are offset elsewhere, the carbon can still damage the atmosphere. Many experts argue emissions must be reduced absolutely to address the climate crisis. As a result, many Silicon Valley stalwarts come out with poor ratings.
"Every person who connects their portfolio to Sugi will find something surprising," Gregory said.
More generally, ESG can sometimes mislead investors. By lumping environmental ratings in with social impact assessments and governance judgements can obscure the true impact on each measure unless people look closely. A strong governance rating can even out a weak environmental score for example.
"It’s a bit fuzzy and there have been so many scandals recently around ESG," Gregory said. "You can quantify a lot of environmental impact, whereas social and governance is really based on values and doing cross comparisons between investments based on their governance can be a little bit more difficult."
Sugi and Clim8 hope that by making the climate impact clearer — and nudging investors towards greener alternatives — they can encourage retail investors to put their money towards healing the climate, not just limiting the damage.
"That’s putting your money that are into clean energy or clean tech or sustainable foods or electric mobility or circular economy — all these companies that are out there already making an impact," Grierson said.
Both Grierson and Gregory come from a climate background rather than traditional finance. Grierson has had a 20-year career in the sustainability industry while Gregory has worked for almost a decade across academia, think tanks, and non-profits looking at areas like forest conservation.
"I’m not just jumping on the green bandwagon which I think other people are doing," Grierson said. "I care deeply and have spent quite a lot of my life trying to make an impact, trying to make a change.
"It’s not going away, it’s not a fad. We as users, as consumers, we need to be putting our money into things that are making a difference."
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